Rating Update
June 22, 2020 | Mumbai
Kusalava Finance Limited
Update as on June 22, 2020
This update is provided in continuation of the rating rational below.
The key rating sensitivity factors for the rating include:
Scale of operations
Asset quality
CRISIL Ratings has a policy of keeping its accepted ratings under constant and ongoing monitoring and review. Accordingly, CRISIL seeks regular updates from companies on the business and financial performance. CRISIL is, however, awaiting adequate information from Kusalava Finance Limited (KFL) which will enable us to carry out the rating review. CRISIL will continue provide updates on relevant developments from time to time on this credit.
CRISIL also identifies information availability risk as a key credit factor in the rating assessment as outlined in its criteria ‘Information Availability Risk in Credit Ratings’.
About the company
KFL was incorporated by Mr Chukkapalli Kusalava in 1986 as Cherubic Equipment Leasing and Finance
Ltd and was renamed Chukkapalli Equipment Leasing and Finance Ltd in 1993. The company got its
current name in 1999. Registered with the Reserve Bank of India as a non-deposit-taking, non-banking
financial company, the Vijaywada-based firm benefits from the promoter's strong network of automotive
parts dealership and trading through Bharat Automobiles. Mr Kusalava also owned a Fiat dealership,
Bharat Auto Enterprises, which was discontinued in 1996, and a TVS dealership, Kusalava Motors,
acquired in 1984. However, he did not enter the business of financing of two-wheelers until 1991. At that
time, KFL was financing cars and new trucks, leveraging the network of Bharat Automobiles. However,
with the advent of competition from private sector banks in 2003, it exited the new truck financing
business and shifted focus to financing pre-owned trucks and cars.
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Rating Rationale
April 30, 2019 | Mumbai
Kusalava Finance Limited
Rating Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.30 Crore
Long Term Rating CRISIL BB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale
CRISIL has reaffirmed its 'CRISIL BB-/Stable' rating on the bank loan facilities of Kusalava Finance Limited (KFL).
The rating reflects the company's adequate capitalisation, the extensive experience of its promoters in the asset financing business, and the benefits it derives from the Kusalava group. These strengths are partially offset by small scale of operations with regional concentration, and modest, though improving, asset quality.
Key Rating Drivers & Detailed Description Strengths
* Adequate capitalisation
Capitalisation is adequate for the current and planned scale of operations, and is supported by internal accrual. There has been no requirement for capital infusion in the past 4 years. Networth increased to Rs 19 crore and gearing improved to 2.2 times as on September 30, 2018, from Rs 17.4 crore and 2.4 times, respectively, a year earlier.
* Extensive experience of the promoters
The promoters have been in the industry for more than 25 years. The company also benefits from group synergies as part of the business of financing two-wheelers and four-wheelers is generated through Kusalava Motors Pvt Ltd ('CRISIL BB+/Stable/CRISIL A4+'), the official dealer for Hyundai vehicles in Krishna (Andhra Pradesh). Besides, KFL benefits from Kusalava International Ltd's network of truck operators in Godhavarikhani and elsewhere in Krishna district for its truck and proclainer financing business.
Weaknesses
* Small scale of operations with regional concentration
KFL is a relatively small player due to its conservative growth strategy, as reflected in loan book of Rs 55 crore as on September 30, 2018 (Rs 53 crore as on March 31, 2018). KFL operates only in the Krishna and Guntur districts of Andhra Pradesh.
* Modest, but improving, asset quality
KFL's asset quality was modest in the past, but has been improving with 90+ days past due of 3.9% as on September
30, 2018, against 5.03% as on March 31, 2016. The company has been facing asset quality challenges for the past
few years as its proclainer business (commercial equipment finance) has not been performing well due to delayed
payments from the government to the customers of KFL, which has delayed payments by the customers to the
company. As a result, the company has been reducing disbursements on the proclainer business. However, given
the high collateral value of these vehicles, the management is confident of recovering its dues.
Liquidity
The company has adequate liquidity, indicated by cash balance of Rs 0.21 crore and unutilised bank line of Rs 7.79 crore as on March 31, 2019. The interest and principal collection is estimated at Rs 6 crore against estimated debt obligation of Rs 0.84 crore for the 3 months ending July 31, 2019.
Outlook: Stable
CRISIL believes KFL will continue to benefit from the strong business linkages with the Kusalava group and the experience of its promoters in the asset financing business. The outlook will be revised to 'Positive' if scale of operations increases while asset quality and capitalisation are stable, and systems and policies are put in place to effectively monitor loan portfolio. The outlook may be revised to 'Negative' if deterioration in asset quality exerts pressure on capitalisation and earnings.
About the Company
KFL was established by Mr Chukkapalli Kusalava in 1986 as Cherubic Equipment Leasing & Finance Ltd, and was renamed Chukkapalli Equipment, Leasing & Finance Ltd in 1993.The company got its current name in 1999.
Registered with the Reserve Bank of India as a non-deposit-taking, non-banking financial company, the Vijaywadabased KFL benefits from the promoter's existing network of automotive parts dealership and trading through Bharat Automobiles. Mr Kusalava also owned a Fiat dealership, Bharat Auto Enterprises, which was discontinued in 1996, and a TVS dealership, Kusalava Motors, acquired in 1984, but did not enter the business of financing of twowheelers until 1991. At that time, KFL was financing cars and new trucks, leveraging the network of Bharat Automobiles. However, with the advent of competition from private sector banks in 2003, it exited the new truck financing business and shifted focus to financing pre-owned trucks and cars.
Key Financial Indicators
Particulars March 31 Unit 2018 2017
Total Assets Rs crore 60 52
Total Income Rs crore 9.8 9.0
Profit after tax Rs crore 1.9 1.3
Gross NPAs % 1.4 2.0
Gearing Times 2.2 2.1
Return On Assets % 2.3 2.8
Any other information: Not applicable
Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on
www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific
instruments.
Annexure - Details of Instrument(s)
ISIN Name of
instrument
Date of allotment
Coupon rate (%)
Maturity date
Issue size (Rs Cr)
Rating assigned with outlook
NA Cash credit NA NA NA 30 CRISIL BB-/Stable
Annexure - Rating History for last 3 Years
Current
2019 (History) 2018 2017 2016 Start of 2016
Instrument Type Outstanding
Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities
LT/S
T 30.00
CRISIL BB-
/Stable 31-01-18
CRISIL BB-
/Stable 28-07-17
CRISIL BB-
/Stable 16-08-16
CRISIL BB- /Stable
CRISIL BB- /Stable All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount
(Rs.Crore) Rating Facility Amount
(Rs.Crore) Rating
Cash Credit 30 CRISIL
BB/Stable Cash Credit 30 CRISIL
BB/Stable
Total 30 -- Total 30 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies For further information contact:
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